Question

Lorray Inc. reported Equipment on January 1 of $430,000 and on December 31 of $392,000. The company also reported Accumulated Depreciation on January 1 of $280,000 and December 31 of $313,000. During the year, the company sold equipment with an original cost of $80,000 and a carrying value of $60,000, resulting in a loss of $5,000.

What amounts would be included in the operating activities section of the statement of cash flows?

Select one:

a. Add depreciation expense of $93,000 and subtract loss on sale of equipment of $5,000 from net income.

b. Add depreciation expense of $53,000 and subtract loss on sale of equipment of $5,000 from net income.

c. Add depreciation expense of $93,000 and add loss on sale of equipment of $5,000 to net income.

d. Add depreciation expense of $53,000 and add loss on sale of equipment of $5,000 to net income.

Answer 1

Ans.	Option   D
	Explanations and Calculations:
	Accumulated depreicaiton on sold equipment = Original cost - Carrying value
	$80,000 - $60,000
	$20,000
	*Calculations of depreciation expenses charged to income statement :
	Ending balance of accumulated depreciation	$313,000
	Add: Accumulated depreciation on sold equipment	$20,000
	Less: Beginning balance of accumulated depreciation	-$280,000
	Depreciation expenses charged to income statement	$53,000
	*This amount of depreciation expenses ($53,000) will be added to net income. Just as,
	the loss on sale fo equipment ($5,000) will also be added to net income in the operating
	activities section of a cash flow statement.
	*Non cash (depreciation) and non operating expenses (loss on sale) are added to
	net income.